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A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

Weak manufacturing data from the U.S. sent equity markets on both sides of the border skittering lower Tuesday.

For Morgan Stanley strategist Wanting Low, the data confirms a slower growth outlook that favours defensive equity sectors (staples, utilities, REITs) and government bonds,

“A PMI scenario has historically meant a poor environment for risk assets: In particular, the current scenario of ‘low & falling’ PMI has tended to see poor EM equities returns over the next 3 months. Defensive equity sectors such as global staples and value (relative to growth) tend to outperform. Government bonds rally in this scenario… Today’s ISM PMI reaffirms our expectation of a weaker growth outlook… we stay cautious on risk assets, maintaining an underweight in global equities and global credit, and an overweight in cash.”

“@SBarlow_ROB MS's Lo: 'ISM PMI reaffirms our expectation of a weaker growth outlook"” – (research excerpt) Twitter

“Fears are growing that the U.S. economy is nearing stall speed” – Bloomberg

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The Bespoke Investment Group helpfully reminded investors that similar manufacturing results have not always led to a U.S. recession,

“Looking back to the 1980s, in both 1985 and 1986, the ISM Manufacturing Index dropped into contraction territory (below 50) but stayed above 45 twice without the economy ever going into a full-blown recession. Then, the same thing happened multiple times in the mid-1990s, and then again in 2003, 2012, 2013, and 2016.”

“ @SBarlow_ROB Bespoke: ISMassacre” - (research excerpt, chart) Twitter

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Citi quantitative strategist Hong Li believes the September surge in value stock performance is unsustainable,

“Value rallied in the first week of September, but faded during the second half … Given macro remains the key driver for many factors, such as Price Momentum, Low Beta, Earnings Revision and Value (See Quantitative Factor Profile: Highest Valuation in 40 years for Low Beta), rotation continues to be the major risk among the factors. We fail to see likely catalysts in the near-term, such as a steadily steepening yield curve or truce in the tariff war, which could propel a sustainable rebound in Value.”

“@SBarlow_ROB C: "We fail to see likely catalysts in the near-term ... which could propel a sustainable rebound in Value” – (research excerpt) Twitter

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Reuters energy columnist John Kemp announced the end of the shale oil boom,

“Onshore output was up by 1.149 million bpd in July compared with the same month a year earlier, but growth has slowed progressively from 1.900 million bpd in August 2018. Of the major oil-producing states, Texas has reported the sharpest and most consistent slowdown … The second U.S. shale oil boom (2017-2018) is ending for much the same reasons as the first (2012-2014): high prices encouraged over-production and global oil consumption growth cooled. Experience suggests changes in oil prices filter through to drilling with an average delay of around 4 months and to output with a total lag of around 12 months.”

“U.S. shale oil boom ends as lower prices take toll: Kemp” – Reuters

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Tweet of the Day:

Diversion: “The Actual Harms of Vaping: In a moment of national panic, what is the safest way forward?” – The Atlantic

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